Total industrial production rose a 0.2 percent in May after strong gains in the first four months of 2022. May growth pushed total industrial production to record highs (see first chart). In the last one year, the total industrial production has increased by 5.6 percent.
Total industrial capacity utilization rose 0.1 points from 78.9 percent in April to 79.0 percent, and the highest since December 2018. However, total power consumption remained below the long-term (1972 to 2021) average of 79.5 percent.
Manufacturing output – about 74 percent of total output – posted its second decline in the last five months, down 0.1 percent for the month (see first chart). Compared to a year ago, production output increased by 4.8 percent.
Manufacturing consumption fell 0.1 point to 79.1 percent but the long-term average remained above 78.1 percent. However, it remained below the 1994-95 high of 84.7 percent.
Mining output posted about 14 percent of total industrial production and a strong 1.3 percent increase last month (see the top of the second chart). In the last 12 months, mining output has grown 9.0 percent.
Utility output, which is generally related to weather patterns and accounted for about 12 percent of total industrial production, rose 1.0 percent with natural gas growing 4.5 percent but electricity 1.9 percent. Compared to a year ago, utility output increased by 8.4 percent.
Among the key components of industrial production, energy production (approximately 27 percent of total production) grew 1.4 percent month-on-month (see chart below) with profits across all five components. Total fuel production increased by 7.5 percent year-on-year.
Motor-vehicle and parts manufacturing (slightly less than 5 percent of total production), one of the industries most affected by lockdown and post-lockdown recovery, continues to struggle with semiconductor chip shortages. Motor-vehicle and parts production rose 0.7 percent in May, after gaining 3.3 percent in April and 9.0 percent in March (see second chart below). Compared to a year ago, vehicle and parts production increased by 11.6 percent.
Total vehicle assembly has increased to 10.72 million at a seasonally consistent annual rate. This includes 10.40 million light vehicles (see chart 3) and 0.32 million heavy trucks. Among light vehicles, light trucks were 8.57 million and cars were 1.83 million. Rallies have risen sharply recently but remain below pre-epidemic levels.
The selected high-tech industry index rose 0.7 percent in May (see second chart below) and up 4.1 percent from a year earlier. The high-tech industry accounts for only 1.9 percent of total industrial production.
The combined of all other industries (excluding energy, high technology and motor vehicles; total; about 67 per cent of total industrial production) declined by 0.3 per cent in May (see second chart below). This important segment is 4.4 percent above May 2021.
In this segment, the output of consumer goods decreased by about 19.0 per cent of total industrial production, 0.3 per cent (4.4 per cent more than a year ago) whereas the output of materials (about 25 per cent output) decreased by 0.6 per cent (and 3.8 per cent more than a year ago). . Weakness in these two categories, if it continues, will be a problematic symptom. Other categories in the “all other” category include business equipment (7.7 percent of output) 0.1 percent per month and 6.3 percent a year earlier, construction supplies (5 percent of output) 0.2 percent for the month and 7.1 percent a year earlier, and business supplies (output) 7.3 per cent), unchanged from April but 4.9 per cent higher than a year ago.
Assisted by mining and utility output, industrial output posted a slight gain in May. Production output, however, has declined for the month and has gained only three in the last six months. Of the total output, power, high technology, and motor vehicles (about 32 percent of the output) were the gains in the month, while in many other cases there was little or no gain. Ongoing labor shortages and turnover, rising costs and material shortages, and logistical and transportation constraints have become challenges for the industrial sector. Moreover, unrest surrounding Russia’s aggression in Ukraine, periodic lockdowns in China, and an intensified Fed tightening cycle remain significant threats to the economic outlook. Caution is inevitable.
Robert Hughes
Robert Hughes joined AIER in 2013 for over 25 years researching economic and financial markets on Wall Street. Bob previously headed Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy that combines top-down macro analysis with bottom-up fundamentals.
Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.